Annuities Are All the Rage

That’s right. Although very popular in its many forms, the annuity isn’t for everyone. Interest in these stalwarts of the financial services industry has exploded in recent years. The aging of the population, the decline and disappearance of pensions, equity market upheaval, and innovative annuity product design are all contributing factors to the billions of dollars flooding in to these insurance products. So why can’t you have one? We’ll explore that question and give you insight in to what is going through your financial professionals mind as he evaluates your interest or request for an annuity.

Annuities, Annuities, Everywhere

There are many types of annuities. We’ll focus solely on fixed annuities; these annuities are contracts with insurance companies with no investment in equities, (simply meaning no mutual funds or any type of security). There are multi-year guarantee annuities, sometimes called Certificate of Deposit (CD)-type annuities that pay a guaranteed rate for a guaranteed period, usually ranging from one to ten years. There are fixed annuities that pay a rate guaranteed for one year and then renew yearly at a rate the insurance company declares. There are indexed annuities that credit interest by tracking, but not participating in different indices, the S&P 500 being one of the most popular. Lastly, there are immediate annuities which may pay a lifetime income, an income for a defined period, or a combination of the two based on your age and the amount of money contributed.

A quick review:

• Multi-Year Guarantee Annuities Guaranteed Rate for Guaranteed Time Period
• Fixed Annuities Usually guaranteed for one year, renewing at new rate.
• Indexed Annuities Interest credited by tracking an index.
• Single Premium Immediate Annuities Payments based on amount of money and age.

Annuity Research, Annuity Smarts

If you are researching annuities as a consumer you may have heard about some of the great features and benefits an annuity delivers. Some of the most obvious advantages are safety, tax advantages, competitive rates of return, probate avoidance and the like. Of course, there are income riders, premium bonuses, and a myriad of bells and whistles. What does it all mean to you, the consumer? Well, it could very well mean nothing. I say this because financial products are a means to an end, and in this vein, a professional in the financial services business will not start the conversation with benefits and features of products and strategies.

Think Like Your Advisor

A good advisor will start out with some very clear questions. These questions will determine your goals, your values, your attitudes and dreams. There is never a cookie-cutter answer to the very human questions about your money. Annuities are used predominately with pre-retirees or retirees, I said predominately, because the world isn’t black and white and each solution and recommendation will vary. Retirement is certainly not mandatory and it could manifest itself in countless ways as you age.

As your advisor begins to thoroughly understand your expectations and you communicate clearly with one another what your goals are, your advisor begins to focus on a plan. If annuities are an alternative, here are some of the questions that will be asked and ones you need to answer.

Where is the money now? Bank Account, CD, Retirement Savings?

What is the money for? Retirement, rainy day, pass on to heirs or charity?

Is the money in a Qualified Plan? Is this money in a qualified retirement plan, tax deferred?

What state is your primary residence? All products are not offered in all states.
How is your health? Health can play a role in certain annuity payouts.

What percentage of your liquid assets does this money represent? You must always have enough money available

When and how to expect to access the money in your annuity? Have a plan for when and how much money you receive.

You CAN Have an Annuity
Annuities are versatile products meeting many needs. They are designed and are to be used in the accomplishment of your goals. If you talk to a financial professional that has the skill and care to understand what you’re trying to accomplish you might be the proud owner of an annuity. Then again, you just may be told you can’t have one. With a good advisor you will know why, and agree!